1971 (9) TMI 52 - HC - Income Tax

Whether on the facts and in the circumstances of the case the business of brick-kilns is not a cottage industry and hence income therefrom is not exempt from tax - Whether on the facts and in the circumstances of the case the claim for depreciation, on the amount incurred for the purchase of land has been rightly rejected - We answer both the questions referred in the affirmative in favour of the Commissioner of Income-tax and against the assessee

Summary

Issues:
1. Whether income from brick-kilns can be exempt from tax under the definition of a "cottage industry"?
2. Whether depreciation claim on the amount incurred for the purchase of land is valid under the Income-tax Act?

Analysis:

Issue 1:
The case involved the question of whether income from brick-kilns could be exempt from tax under the definition of a "cottage industry." The assessee, a co-operative society with brick-kilns, claimed exemption under section 14(3)(i)(b) of the Indian Income-tax Act, 1922, contending that brick manufacturing qualified as a "cottage industry." However, the Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal all rejected the claim. The Tribunal emphasized that a "cottage industry" typically operates on a small scale, in homes of artisans, with limited capital and workers. In this case, with 182 brick-kilns, a large turnover, and employment of numerous individuals, the Tribunal concluded that the activity did not meet the criteria of a "cottage industry." The High Court concurred with the Tribunal's decision, stating that the distinctive features of a "cottage industry" were not present in the assessee's operations, ultimately rejecting the claim for exemption.

Issue 2:
The second issue pertained to the assessee's claim for depreciation on the amount spent on purchasing land. Both the Income-tax Officer and the Appellate Assistant Commissioner had rejected this claim, which was further upheld by the Tribunal. The Tribunal clarified that depreciation could not be allowed on open land associated with a building, as it was not permitted under the Income-tax Act. Citing the Supreme Court's decision in Commissioner of Income-tax v. Alps Theatre, the Tribunal highlighted that depreciation could only be claimed on the cost of the superstructure, not the land itself. The High Court agreed with the Tribunal's reasoning and upheld the rejection of the depreciation claim. Consequently, both questions were answered in the affirmative, favoring the Commissioner of Income-tax and ruling against the assessee. The Commissioner was awarded costs, assessed at Rs. 200, with counsel's fee set at the same amount.